It may be time for alternative thinking

Hedge funds have been getting a bad rap since the market meltdown. Sure, there were a few cowboys who played fast and loose with the global financial system to pocket a few million bucks, but the very nature of hedge funds allows a wide range of risk. In fact, the perfect hedge ends with the original amount invested—no more, no less.

Since those white-knuckle days of 2008, investors are finding hedge funds, or alternative investments, can provide a way to squeak out gains regardless of which direction the broader market is moving. According to The Eurekahedge Hedge Fund Index—which tracks more than 2,600 funds worldwide—$70 billion streamed into hedge funds last year, bringing the total to over $1.65 trillion. The index returned 11% in 2010 and 20% in 2009 and all nine strategies in the index advanced, including a 21.3% jump for distressed debt.

Craig Machel from Macquarie Private Wealth is trying to channel his clients into the softer side of the alternative investing wave. His market neutral strategy targets returns of about 8% annually through strategies like long/short equity, long/short bond, options and mergers & acquisitions. He tells Portfolio Builder how to make alternative strategies part of your investment plan.

Dale Jackson is a producer at BNN. He also dispenses personal finance advice on The Street three times a week.